Howes: Michigan business loses in jumbled Whitmer tax plan

Daniel Howes
The Detroit News
Gov. Gretchen Whitmer, right, presents her budget to Michigan lawmakers, a proposal that would increase taxes on small business even as it exempt public-sector pensions from the state income tax.

Michigan business now has an answer.

Just days after Gov. Gretchen Whitmer dispatched her Republican rival, business leaders accustomed to eight years of business-savvy leadership in Lansing sought clues to whether they'd have an ally in the former Senate minority leader — or a throwback to the "Lost Decade."

The governor's inaugural budget this week partly answered the question: not so much. The net effect of her business tax proposals — to the extent they have any hope of surviving a Republican-controlled Legislature expected to mull her 45 cents-a-gallon increase in the gas tax — is a tap on the economic brakes just as the hometown auto industry’s blistering sales and profit pace is beginning to slow. 

And Whitmer's proposal to repeal the income tax on public-sector pensions even as private-sector pensions and 401(k) assets would continue to be taxed at the 4.25-percent state rate revives a "fairness issue," as one business leader put it, that apparently would not apply to businesses the governor wants to treat equally under her tax proposals.

Is this the Whitmer way: impose "parity" on business taxpayers, as administration officials said Wednesday, even as you re-establish a favored class of individual taxpayers who, ahem, just happen to be veterans of Michigan's public sector? Some parity, this "fairness" that's in the eye of the beholder.

"Certainly do not support changing back to treating pension retirement income differently from everybody else’s retirement," Detroit Regional Chamber CEO Sandy Baruah wrote in an email. "Fairness issue. We dealt (with) that issue in 2011 and feel we should not revisit.

"The 1.5-percent proposed increase in pass-through business tax is also something we are concerned about. Michigan already has a need for more business start ups, and this would be a step in the wrong direction. We can, however, seriously consider getting behind the increase in gas tax. We have long held that user fees of some sort are the way to address this challenge."

Credit Whitmer with proving yet again an enduring truth of Michigan politics: it's consistently inconsistent, swinging from one partisan worldview to the other as predictably as crumbling roadways in the freeze-thaw cycle of late-winter Michigan. Consensus depends on who's in power, not any bipartisan agreement on quantifiable reality.

Proof comes in what people do. In her widely anticipated budget address, the governor moved quickly to reward political allies and serve notice on small business: you can pay more for the privilege of operating in a state that desperately needs to keep encouraging investment and improving its business climate.

Some bargain, that. Michigan's decade-long revival is a product of many forces — a revived auto industry powered by a long-running national economic expansion, business-friendly tax and regulatory policy at the state level, comparatively low interest rates, pent-up demand for cars, trucks and SUVs, and opportunistic investment in a financially restructured Detroit.

Erecting policy obstacles to any of those trends for reasons of political score-settling is politics as usual. But it's dumb, counterproductive and evidence of failing to understand fully how business drives growth or the political constraints imposed by divided government, especially so early in the governor's term.

It's in the interest of the state and Whitmer's political future to ally with business in ways her predecessor, Rick Snyder, did. Unemployment plummeted and manufacturing employment revived. The auto industry for now is consistently profitable, if undergoing a sometimes difficult transformation. Business leaders are actively supporting civic causes and using corporate dollars to augment limited public budgets.

And billions in private-sector capital continues to fuel the reinvention of Detroit — a process that is not helped by higher taxes on small businesses and the kind of start-ups that could change for the better the business character of Detroit.

Moreover, renewing in form if not kind the anti-business policies of the last Democrat to occupy the governor's chair isn't exactly the smartest way to win friends and build alliances with business leaders. Traditional Democratic allies among public-sector employees and unions, to name two, don't generate revenue so much as consume it.

A vibrant business climate that encourages investment and risk-taking, that further diversifies and techifies the economy, is far more valuable to more Michiganians than tweaks to the tax code that amount to picking winners and losers among favored groups. Plus, it's not likely to succeed with Republicans controlling the Legislature.

"Taking actions like that would be doubling down on stupid," Senate Majority Leader Mike Shirkey, R-Clarklake, told reporters in Lansing. He's got a point, considering that Whitmer's top priority is alleged to be finding the revenue to "fix the damn roads."

Winning enough votes to realize that piece of her vision — a top priority for the state's residents — would be more likely if the governor focused on selling her clean gas-tax proposal. And if she left alone ideologically driven tax reforms until her party can deliver the votes to ensure she gets her way.

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Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.